Cenvat credit reversal for exempted goods was sufficient to avoid Rule 6(3)(b) liability despite no separate records.

Reversal of Cenvat credit attributable to common inputs used in exempted final products was treated as sufficient to avoid liability under Rule 6(3)(b) of the Cenvat Credit Rules, 2002, even where separate records were not maintained. The analysis notes that the legal position was clarified by a retrospective amendment, under which payment linked to the value of exempted goods was not required once the relevant input credit had been reversed. On that basis, Rule 6(3)(b) was held inapplicable and the demand was not sustainable.

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Issues: Whether reversal of Cenvat credit on inputs used in exempted goods before removal of the exempted final products was sufficient to avoid liability under Rule 6(3)(b) of the Cenvat Credit Rules, 2002 despite non-maintenance of separate records.

Analysis: The dispute turned on the effect of reversing the credit attributable to common inputs used in exempted goods. The Tribunal noted that the assessee had reversed the relevant credit and that the legal position had been clarified by the retrospective amendment, under which payment of an amount linked to the value of exempted goods was not required where the credit on inputs used in such goods stood reversed. The Tribunal also relied on the settled view that Rule 6(3)(b) would not be attracted once the credit was reversed.

Conclusion: Reversal of the credit was held sufficient, and the demand under Rule 6(3)(b) was not sustainable.

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